Australia’s leased hotel market is hotting up, shifting from an emerging niche sub-sector to one that is firmly on the radar of forward-thinking institutions.

Considerably smaller than its counterparts in Europe or the UK, Australia’s leased hotel market is one of the last untapped major commercial real estate sectors for institutions to play in. Thanks to our burgeoning $50 billion tourism economy, both syndicates and institutions are looking to increase their exposure to these assets.

The evolution of leased hotels aligns with accommodation trends like build-to-rent (BTR), purpose-built student accommodation (PBSA) and co-living. With stable fundamentals, secure income streams and competitive yields, leased hotels are a compelling investment.

And for early institutional entrants, they present an opportunity to lock in long-term returns and capital growth before market competition really heats up.

The Quiet Achiever: Behind the Leased Hotel Boom

Leased hotels are apartment-style assets that cater to both short-stay and extended-stay guests, combining operational flexibility with stable income. While most were initially strata-titled, the market has matured. Increasingly, these assets are being held in-one-line by institutional owners or as single lots within mixed-use developments.

And Savills’ research shows they’ve outperformed other property sectors over the last 20 years. The average annual return from 2005-2025 is 9.6%, considerably above the 8.1% average for commercial property.

The sector’s performance is underpinned by robust domestic and overseas travel, contributing $176.8 billion to the economy in the year to June 2025 (Australian Trade and Investment Commission).

Recent transactions highlight rising appetite from institutional investors, including the sale of Quest Springfield Central in Queensland to Serene Capital for $26.7 million. Other Quest asset disposals also reflect the trend, such as Accure Funds Management snapping up Quest Dubbo for $17 million.

Leased Hotels Hold the Key to Stable Yields

At their core, leased hotels offer long-term, annuity-style income backed by strong covenants from established operators like Quest (part of The Ascott Limited) and Mantra (part of Accor). These strong covenants de-risk the investment and enhance asset liquidity.

Growth is baked in, as leases are typically structured with fixed annual rental increases. Incentives that are common in other commercial leases - like rent-free periods - are rare for leased hotels.

Leased hotels offer higher yields than other commercial asset classes, including industrial property, retail, healthcare and childcare, where rising institutional investment has driven yields lower. They offer a more attractive yield of around 6-10%, compared to 4-7% on other commercial property assets, and typically have longer lease terms of up to 30 years.

And unlike managed hotels where the owner bears operational risk, a leased hotel structure transfers risk to the operator and ensures stable rental income with fixed escalations. In many cases, leases are structured as triple net, where the tenant is responsible for all outgoings, including maintenance, insurance, rates, and capital expenditure. This results in a true passive investment with minimal landlord obligations.

No Reservations as Sector Set to Heat Up

Quest continues to dominate the space thanks to its network of franchisees, but rising players like Oakwood and Veriu are bringing in competition.

Lease structures are evolving too. While fixed-rent models still lead the way, more deals now include turnover-based provisions that link rent to performance. That alignment between landlord and operator is making the sector even more attractive to investors and financiers.

With interest rates stabilising and developers using lease-backed models to unlock funding, all signs point to continued growth and more institutional capital flowing in, with yields tipped to compress.

The bottom line is that leased hotels are no longer a niche play - they’re becoming an integral part of Australia’s accommodation investment landscape, and a sector to watch.

Disclaimers:

The postings by any individual on any blog do not necessarily represent the position of Savills, its strategies or opinions.